Yahoo Finance's Brian Cheung and Jared Blikre break down how the stock and bond markets have digested this morning's CPI data, in addition to the outlook on the Fed's interest rate hike in July.

Video Transcript

- Stocks are currently mixed at the moment. Let's take a look at the markets right now. Just about an hour to go before trading. And the Dow was down more than 460 points at one point. It pared back some of those losses significantly. The S&P still hanging on to some slim, slim gains, as is the NASDAQ, up 0.3%. So following the latest CPI report, let's take a closer look at how this is impacting the markets. Our own Brian Cheung and Jared Blikre are here. Tag team on this action. Good to see you, fellas. Jared, where are we starting?

JARED BLIKRE: Well, let's start at the beginning. Here we have our World Board. But I want to go to the futures because S&P 500 futures as well as all the other majors sold off. That was that surprise print that we got. 9.1% this morning. You can see we've kind of climbed back to the unchanged here. And I also want to check out the NASDAQ here. That's going to be a similar story.

You can see we're fluctuating around the unchanged. But the damage was done earlier today. But net-net, the markets are looking like they don't really care. They're shrugging this off. And why would that be? Well, we got that nasty CPI print back in May. And the markets responded very negatively to that. Let me just put a year to date chart up here. It looks like we pressed the wrong button.

BRIAN CHEUNG: There are a lot of buttons on here.

JARED BLIKRE: I'm sorry about that, guys. But we're going to have to get back to the S&P 500. We had a negative print in May. And guess what. The markets took off with it. And let's see if we can finally get that chart. Here we go. Year to date, down 20%. And we are testing the bottom end of a three-week trading range. So bottom line, I think investors de-risked into this report. And there is nothing happening here. No additional selling. But we're really not seeing much additional buying either. And Brian, let's take a look at the yield curve because under the 10 year, this has been a mess here. All this bond market volatility has been leaking into equities. And I do have a chart for you. This is the yield curve, where it is today versus one month ago. And if we annotate this--

BRIAN CHEUNG: You want to draw this with the yellow one right here? There we go. Look at that.

JARED BLIKRE: So that was one month ago. You can see the long end has come down. And this is where we are currently. Meanwhile, the short end is screaming higher, Brian.

BRIAN CHEUNG: Yeah. And when you take a look at that type of yield curve inversion, what that's usually flashing is concerns about the term duration. You see a lot of investors saying, well, I can get a lot more returns in the near term because I don't want to have the duration risk given if we're going to tilt into recession soon what my returns might look like. And this spill in the bond market is very much emblematic of the uncertainty that we've seen from Federal Reserve policy when you remember we were expecting a 50 basis point hike in the last meeting in June and got 75. People were saying, well, the debate for the end of this month is between 50 and 75.

You have Raphael Bostic, the head of the Atlanta Fed, now saying, well, it's not necessarily off the table for a 1% increase in the Fed funds rate in their last meeting in about two weeks. Now, keep in mind, the Federal Reserve chairman himself, Jay Powell, said in the June meeting that he doesn't want to put a number on what the Fed rate hike might be. But, look, you take a look at what other central banks are doing. I don't know if we have the Canadian dollar right now.

JARED BLIKRE: Let's pull this out right here.

BRIAN CHEUNG: If you can pull that up, you can see that the Central Bank of Canada made an abrupt kind of move to 100 basis point move today. So the Fed can't say, well, no one's doing it because, at least right now, our neighbors up North are doing that as well.

JARED BLIKRE: Here we go. The loonie a little bit lower here.